Azione Seeking Home Automation Niche Amid Push by Big Service Providers

NEW ORLEANS -- The big push by AT&T, Comcast and other large service providers -- combined with Control4 going public and the formation of the Via company by six integrators -- point to a new age for the custom electronics industry, participants said at the Azione Unlimited conference this week. Players see opportunities and threats and are looking at ways to adapt and survive, while Azione itself is trying to find its role as an organization in the changing market.

The connected home drive by service providers is having an impact in major markets “and more than you think,” David Daniels, co-owner of Xssentials in Denver and Aspen, Colo., told Consumer Electronics Daily. In Xssentials’ more mainstream Denver market, consumers aged 30-50 are “installing this stuff like crazy in their houses,” he said. “They love it, they're proud of it and it works,” he said. The affordable Digital Life, Xfinity and Pulse systems enable customers to “dip their toe” into home automation and explore it “without having to go in for the deep dive and spend a hundred grand,” he said.

Azione and other CEDIA-level dealers aren’t feeling the impact of the larger companies in a significant way now, Daniels said, “but two to five years from now we're going to have to figure out how to play with them. It’s foolish to play against them,” he said. Daniels said he sees an opportunity for custom integrators to fill a gap just beyond the entry-level home automation systems being installed by AT&T and others. The project space between $2,000 and $20,000 offers an upgrade path for consumers in an area where Comcast and others “don’t want to play,” Daniels said. That level requires a higher level of expertise, installation capability, customization and support where custom integrators can thrive, he said. “The question is how,” he said.

Meantime, the large service providers entering home automation are seeding the market for upgrades, Daniels said, comparing the scenario to customers buying their first car. “It’s your first foray and your next one is going to be an upgrade,” he said. As incomes and families grow, consumers’ taste for connected home products will advance along with aesthetic demands for more design-oriented technologies, he said. The growth path could lead even to $100,000-$200,000 at the high end, he said. “I think they're doing us all a big favor,” he said of the service providers entering the space.

Azione President Richard Glikes also sees the arrival of AT&T, Comcast and others as a good thing for custom dealers because it raises awareness of home automation overall. Not all awareness will be positive, he told us, leaving room for independent home automation dealers to take advantage of mistakes. “They're going to sub out a lot of that work, and they're going to do a lousy job, certainly in the beginning,” he said.

Glikes is hoping Azione members will soon have access to a home security product that will enable members to compete in that part of the connected home business, maybe even with a company like AT&T. AT&T “doesn’t care as long as they get a piece of the action,” he said. “They want the recurring revenue and that’s a way we could share recurring revenue,” he posited. What Azione dealers could bring would be installation expertise for camera-based security systems over Wi-Fi or another network, he said. “We do cameras, we do networks, but you need a provider,” he said. “AT&T could be happy to get their revenue and we'd be happy to get a piece of it.” That would give Azione dealers access to the consumer to sell more gear beyond what’s in AT&T’s portfolio, he said. Glikes hasn’t approached AT&T or another service provider about that type of relationship, however, “and they haven’t called me."

In a roundtable on disruptive technologies, Daniels challenged members to brainstorm over issues threatening custom integrators’ businesses including competition from national service providers, falling labor rates, shrinking margins, the increasing number of retail channels and direct competition from manufacturers. Daniels cited increased mainstream press coverage of companies including AT&T, Comcast and ADT that have entered the connected home business and encouraged dealers to acknowledge the threats rather than “bury their heads in the sand."

The Nest thermostat, a $249 connected device that’s available direct from the company and at Best Buy and Sears, among others, has been a poster product for disruptive technologies in the custom world. Dealers have resisted customers’ interest in Nest and have tried to steer them in another, more profitable, direction, Daniels noted. He applauded one dealer who took the approach of “just saying yes” to the client. “Get the customer” first, he said, and then “teach them that there’s more than a Nest thermostat.”

Devices like the Nest will proliferate in the growing connected market, Daniels said. For Azione dealers to survive, they'll have to position themselves as experts that can help navigate customers through the murky connected home waters. By adapting and leveraging customers’ interest in a high-profile product like Nest, dealers can gain a new customer and build a relationship from there building on their expertise in the connected home category.

On Control4’s recent IPO, it won’t have an effect on dealers in the short term, Daniels said, but the valuation of the company by the financial industry has been a boost to the control category overall, he said. “Control is finally getting recognition, and there’s a potential opportunity to grow the space a lot with capitalization,” Daniels said. If other manufacturers find a way to take advantage of that “it would be great for the industry,” he said, saying it could “elevate the importance of integrated systems and total home control overall to the public.” The Control4 market capitalization at roughly $60 million was “impressive” and “mega crazy in my book,” Daniels said. For any company that’s part of the control category, the Control4 move marks an opportunity to seek capital and grow, too, he said.

On the announcement last month that six integrators had formed Via as a buffer against the incursion into home control by AT&T, Comcast, Best Buy and other service providers, Daniels said the move shows “maturity” in the industry. “I'm a fan of all of it,” Daniels said, adding that consolidation is “good for the industry.”

Azione has two member companies that are part of Via: Forefront Innovations, of The Woodlands, Texas, and DSI, Lake Balboa, Calif. On what impact Via will have on Azione as it expands, Glikes told us “the evolution of Azione could be an entity of its own as well.” The idea hasn’t been lost on Glikes who has already begun putting in place some of the pieces necessary to make Azione a national branded entity. “That’s why you want everyone on the same software platform, have a uniform product mix, have branded private-label products,” he said. Looking ahead, he said, “what AT&T or Comcast wouldn’t want to have 250 dealerships with 3,000 trucks and trained installation capabilities at their fingertips?” The scenario is about 175 dealers short as Azione just added its 77th integration company, but Glikes still has his original target of 250 member dealers in his sights.